Housing Rent Controls

AS Micro – Autumn 2013

The Rising Cost of Renting

Renting has become more expensive

Region Average Rent (Sept 2012, £s per week)

London £1,092

South West £638

Yorkshire £542

North West £594

Wales £556

South East £776

England and Wales £741

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

1. Define a maximum rent2. Explain where a maximum

price must be to change the free-market equilibrium price

3. Use a clear supply and demand diagram to help

4. Include some evaluation

Maximum rents – rising demandRental Market with a Maximum Rent

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

1. Max rent is a price ceiling2. Must be set below normal free

market equilibrium3. In diagram – set at rent P2

Maximum rents – rising demandRental Market with a Maximum Rent

P2ceiling

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

1. Max rent is a price ceiling2. Must be set below normal free

market equilibrium3. In diagram – set at rent P24. P2 (ceteris paribus) creates an

excess demand or shortage = Q3-Q2

Maximum rents – rising demandRental Market with a Maximum Rent

P2ceiling

Q2Q3

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

1. Max rent is a price ceiling2. Must be set below normal free

market equilibrium3. In diagram – set at rent P24. P2 (ceteris paribus) creates an

excess demand or shortage = Q3-Q2

5. Shortage may lead to a shadow market developing – some people willing to pay P3

Maximum rents – rising demandRental Market with a Maximum Rent

P2ceiling

Q2Q3

P3

Analysis

Evaluation

Application

Good application opens the door to good analysis and good evaluation

Examiners like answers that make

connections

Examiners reward answers that provide

chains of reasoning

These are good connective phrases

by contrast…

A consequence of this might be

…

therefore…

this might

mean… on the other hand…this is because

Building the Case for Rent ControlsOn grounds of equity• High rents hit low income families• Affordable renting will reduce poverty

On grounds of efficiency• Affordable rents improves labour mobility• Encourages smaller homes to be built

Targets monopolistic landlords• Exploiting the consumer / low price elasticity• Will free up properties for the government to buy

Building the Case for Rent ControlsOn grounds of equity• High rents hit low income families• Affordable renting will reduce poverty

On grounds of efficiency• Affordable rents improves labour mobility• Encourages smaller homes to be built

Targets monopolistic landlords• Exploiting the consumer / low price elasticity• Will free up properties for the government to buy

Building the Case for Rent ControlsOn grounds of equity• High rents hit low income families• Affordable renting will reduce poverty

On grounds of efficiency• Affordable rents improves labour mobility• Encourages smaller homes to be built

Targets monopolistic landlords• Exploiting the consumer / low price elasticity• Will free up properties for the government to buy

Please use BIG DIAGRAMS – large, clear diagrams are easier to mark and credit!

Counter-ArgumentsRent caps causes supply contraction• Less incentive to build or convert homes• Lower spend on property maintenance

Creates incentive for black market• Landlords may find other ways to get money• May worsen tenancy security

Rent cap doesn’t tackle bigger issue• Need to build more homes • Other policies might be more effective

Counter-ArgumentsRent caps causes supply contraction• Less incentive to build or convert homes• Lower spend on property maintenance

Creates incentive for black market• Landlords may find other ways to get money• May worsen tenancy security

Rent cap doesn’t tackle bigger issue• Need to build more homes • Other policies might be more effective

Some Counter-ArgumentsRent caps causes supply contraction• Less incentive to build or convert homes• Lower spend on property maintenance

Creates incentive for black market• Landlords may find other ways to get money• May worsen tenancy security

Rent cap doesn’t tackle bigger issue• Need to build more homes • Other policies might be more effective

Wider Points / Issues

Landlords

Will rent caps change

behaviour?

What choices do they have?

Tenants

Which tenants will be

affected?

What rented housing will

be available ?

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

With the help of an appropriate diagram show how the

introductionof a maximum rent might affect the market for rental properties

Evaluating possible effects on market for rental properties

1. Extent of contraction in rental housing supply is uncertain

2. Will there be a long run decline in supply?

3. Possible reduction in quality of rental housing available

4. How will max rent respond to shifts in demand?

Maximum rents – rising demandRental Market with a Maximum Rent

P2ceiling

Q2Q3

P3

Rent per month (£)

Quantity of rented property

O

Demand 1

Supply 1

Q1

P1

Maximum rents – rising demandRental Market with a Maximum Rent

P2ceiling

Q2

P3

Evaluate the case for and the case against the introduction of maximum rents in the market for

rented properties in the UK

Evaluate the case for and the case against the introduction of maximum rents in the market for

rented properties in the UKBigger picture – long term shortage of available rented property

Efficiency – does a price ceiling improve the market outcome?

Equality – is a max rent equitable - helping those in most need?

Scope – how low would the ceiling be? National? Regional?

Time – long term effects of holding down market rents

Effectiveness – unintended consequences? Better alternatives?

Prioritise arguments – what is your main argument and why?

Scale – Significance – wider importance of the rented sector

Improving rented housing supply

Improving rented housing supply

Relaxation of planning

controls

Tax incentives for “build to rent”

Incentives for building innovation

Release of surplus

land

Build more social

housing

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